Home Equity Loans – second mortgage

Josh Spaulding asked:


A second mortgage, or a home equity loan, is a good option if you’ve got climbing debt and some equity built up in your home. Taking out a home equity loan or a home equity line of credit may be a viable solution for you, but only if you find the right second mortgage interest rate.

You can use the funds from your second mortgage or line or credit in order to pay off debt, do home renovations or consolidate your bills. However, if you’re using it to pay off debt and you don’t do anything to adjust the way that you have been spending money then you’ll end up overspent again in just a few years. Don’t think of a second mortgage as a band-aid to a bad spending habit. Take out the second mortgage but also start using a family budget and control frivolous spending.

That being said, getting a good second mortgage interest rate is definitely possible even in today’s market where interest rates are starting to climb. Even with the increases, they are still lower than they were ten to fifteen years ago. If you have an older home, it’s still a good time to take advantage of the equity built up in your home.

Getting a good second mortgage interest rate is easier than applying for your first mortgage. With second mortgages, there isn’t quite as much paperwork, or as much time to wait for approval. Since you have the collateral of your home you represent a lower risk to the lending institution.

There are two types of second mortgages to choose from: the second mortgage loan and the second mortgage line of credit. Your second mortgage loan acts a lot like your first mortgage. You receive a lump sum of money. The second mortgage has lower closing costs than the first, but you are also paying a higher interest rate with the second mortgage.

The second mortgage line of credit acts like a credit card with a standard credit limit, but a line of credit has a variable rate. The interest will change depending on the month, which can be really great when interest rates are low like they have been lately, but difficult if they are high. You can use your line of credit as long as you have funds, but there is a cap to how much you can spend. At a certain period of time, 5, 10 or 20 years in the future, you won’t be able to borrow on the line of credit any longer and you’ll have to start making standard monthly payments. Up until that point, you can pay off as much or as little as you’d like to each month.

Just like with your first mortgage, you’ll want to shop around to get the best second mortgage interest rate. Determine whether a loan or line of credit would be best for you, and then take steps to improve your overall financial picture by using the equity in your home.



ELTON

Albert Alexander asked:


Everyone wants to know the answer to the same question. So how much can I get? How much you can borrow is directly related to your equity which is simply estimated by subtracting the outstanding balance you owe on the home from the current market value. Equity simply refers to the cash value that has grown in your home while you have been making your monthly payments over time. Equity loans enable homeowners to borrow money against their home’s calculated value.

At the same time as home equity loans are a great approach to free up extra cash which is tied up in your home, borrowers must be fully aware that they are using their home as collateral. If a situation arises and their loan obligations aren’t met, they could lose their home. Historically, home equity loans were strictly used for home repairs that would increase the value of your home. Nonetheless, these loans have become a feasible selection for large, non-home improvement related purchases or even for consolidating outstanding debts into one monthly payment at an affordable interest rate.

These loans, secured by real estate, are generally considered safer by lenders. Because of this your interest rates are likely lower than credit card rates or consumer loans. In addition, regardless of the rate, the interest on debt secured by the mortgage or lien on your personal residence is commonly tax-deductible. Please consult your accountant for more detailed information.

Equity loans are great in that they use the collateral of your home to secure the loan, helping you to get a better rate out of the deal and make smaller payments than you would to a credit card or even on a personal loan. Home equity loans can be used for consolidating consumer debt or covering a large expense such as a wedding, college tuition, or home renovations to your existing home. Home equity loans are desirable to borrowers because they oftentimes have a lower interest rate, they are easier to qualify for even if you have bad credit and payments on a home equity loan may be tax deductible.

Even if most lenders feel comfortable with home equity lending, and may be more liberal because they view home equity loans as comparatively safe, it’s still a loan. Lenders consider many factors such as your credit history, ability to repay the loan, and your homes equity (noted above) when making a decision on how much money to lend. Home equity lending, often referred to as a second mortgage or borrowing against your existing home, can open up a lot of avenues as a funding source for a current homeowner.

Because they normally have a lower interest rate, are easier to qualify for (even with weak credit) and the interest may be tax deductible, home equity loans are a great alternative for individuals. Home equity loans are, when all’s said and done, fixed rate home loans that allow you to take advantage of the money you’ve already invested in your home to finance larger debts at a typically lower interest rate than most revolving credit choices.

Home equity loans are a great option if you are sure of your ability to pay them off. Like anything else however, buyer beware. Hidden fees and confusing rate calculations can make a bad situation get even worse. Less reputable lenders frequently target people in vulnerable circumstances with troubled credit by proposing what appears to be an easy way out.



SHELTON

Bruce Owens asked:


Second mortgages are allowing Canadians to realize their home renovation aspirations. Canadian homeowners have accumulated significant equity in their homes as housing prices have increased year after year in what has been, until recently, the hottest housing market this country has witnessed since the end of the Second World War. Now that the housing market has cooled, however, Canadians are using some of the equity they have built up to finance significant upgrades to their homes through renovations.

The Canadian Mortgage and Housing Corporation tracks home renovation trends across Canada. Recently released statistics from the CMHC show that Canadians spent close to $19.7 billion last year in the 10 major urban centers that were surveyed. Overall, 37% of the households surveyed reported that they had completed some form of home renovation in 2007. Canadians reported that the main reasons they undertook renovations were “to update, add value, or to prepare to sell their home.”

Most Canadians- about three quarters – paid for home renovations from their savings; however, 20 per cent of home renovators paid for their renovation project with a credit card or line of credit. Not surprisingly, the average amount spent on renovations paid for with credit was higher than the amount spent from savings – $13,500 versus $11,200.

Indications are that these trends will continue in 2008, as two out of five respondents in Canada’s five largest regional centers – Vancouver, Calgary, Toronto, Montreal and Halifax – indicated that they were planning on undertaking home renovations in 2008. With a cooling housing market, and house prices forecast to grow only marginally in 2008 and 2009, home renovations represent one way in which homeowners can act to build in value to their homes.

Home renovations make sense either to enhance the enjoyment of one’s home or to increase its curb appeal in an emerging buyers’ market, but homeowners using savings or, worse yet, credit cards to finance major home renovations risk depleting their assets. Far better, to arrange a second mortgage or line of credit secured against your home’s existing equity when undertaking a major home renovation project.

While savings or credit card debt can readily finance a minor renovation project such as remodeling a bathroom or painting and wall papering – two of the most popular projects according to the CMHC -when undertaking a major renovation, like building an addition or finishing a basement, it makes sense to use a second mortgage secured against existing home equity as second mortgages carry a much lower interest rate than most credit cards. Moreover, second mortgages can be structured as construction loans, where money is borrowed in “draws”or stages as each phase of a major renovation is completed, cutting down the interest you pay during the renovation process.

Second mortgages are available from commercial banks and trust companies, as well as from a wide pool of other financial institutions and private lenders. Generally, they will carry a marginally higher interest rate than a first mortgage, but their carrying costs need not be prohibitive. If you are contemplating major home renovations and plan to finance renovations through a second mortgage, working with an experienced and well-resourced Canadian mortgage broker can help you access favourable terms and interest rates that may not be commercially available from your bank, credit union or trust company.



ELMER

David Gass asked:


While on the look out for your dream home, you might have come across the terms “equity” and “home equity loans.” Below is an explanation to help you understand these terms.

What Is Equity?

Suppose the value of your home is $200,000 and the mortagage value is $50,000. The equity value of your home is $150,000. Equity is the difference between the value of your home and the mortgage balance.

Home equity loans have lower interest rates that are not subject to tax. Hence, it has become the most preferred option for home buyers. People use home equity loans in case of big expenses like weddings and home renovations. However, you should be careful, since you’re putting your home up as security. If you fail to pay it back, you may lose your home.

It is not advisable to take equity loans for paying off your credit card dues, especially if you cannot refrain from indulging in extravagances, as this will lead to more debts.

Types of Home Equity Loans

Home equity loans are of two kinds:

Traditional home equity loan or second mortgage: The bank provides a substantial amount of cash that you must pay back over a period. Here, interest starts right on the day the bank gives you money.

Home equity line of credit: The bank offers a credit card or a checkbook for purchases. This is collected against the equity of your home. Here, interest starts only after you make a purchase.

Paying A Home Equity Loan

Home equity loans can be paid in many ways. Usually, people pay them by making regular payments under the interest as well as the principal. In some loans, you have the flexibility of paying only the interest initially. Then there are loans that give you an option of getting rid of the principal faster by paying some extra amount. However, it is better to check out this option with your lender, as there are some loans that fine you for paying ahead.

How To Find A Home Equity Loan

It is wise to go to a bank that is different from the one that has your frst mortgage. Always do some comparisons before making the final decision, in order to get the best interest rates and terms on the loan.

Most home equity loans have different interest rates. Some of them come with a fixed interest rate while others have small introductory rates. Certain loans come with high closing costs and annual charges.

Then there are loans featuring huge balloon payments. Others have no balloon payments and come with large monthly payments.

An After Thought

Finding the best home equity loan requires some effort, but it is rewardig at the end. It can help you pay off debts or acquire money to start a new business venture.



TERRY